2018 (11) TMI 1023 - AT - Service Tax

Levy of service tax - mobilization advance received - amount received from Indian Navy for the purpose of upgrading their infrastructure at the shipyard so as to facilitate they undertaking future refits for Indian Navy - Held that - These are not linked to the present contract and hence can only be termed mobilization advances not linked to any signed contract for rendering services. Of course, in future Indian Navy may award the appellant contracts and the amounts now paid will be adjusted against such contracts. At this stage it is not clear as to what contracts will be signed and whether they will be liable to service tax during that period - there is no ground to charge service tax on the mobilization advance received by the appellant - demand set aside. Liability of service tax - Amounts received towards reimbursement of income tax and VAT paid including the TDS paid by the appellant and reimbursed by the Indian Navy - Held that - These are in the nature of reimbursable expenses and hence cannot be included in the value of taxable services as has been held by the Hon ble Supreme Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. 2018 (3) TMI 357 - SUPREME COURT OF INDIA - Demand set aside. Liability of service tax - amounts received towards RTDs - Held that - These are clearly goods received by the appellant on behalf of Indian Navy and were imported by filing a bill of entry and no service tax can be levied on the goods - demand set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Taxability of amounts received from Indian Navy for building facilities at the shipyard.
2. Taxability of amounts reimbursed by Indian Navy for income tax and VAT paid.
3. Taxability of amounts received for procuring Repair Technical Documents (RTDs) on behalf of Indian Navy.

Analysis:

1. Taxability of amounts received for building facilities:
The appellant, a government-owned undertaking, received amounts from the Indian Navy for upgrading their shipyard facilities. The Revenue argued that these amounts were advance payments for taxable services and thus subject to service tax. However, the appellant contended that the amounts were mobilization advances for strengthening their infrastructure and not linked to any specific service provided or to be provided at present. Citing relevant case law, the Tribunal held that no service tax was payable on the mobilization advance received, as it was not linked to any signed contract for services at the time. The decision was based on the principle that advances not linked to specific services should not be taxed.

2. Taxability of reimbursed amounts (income tax and VAT):
Regarding amounts reimbursed by the Indian Navy for income tax and VAT paid by the appellant, the Revenue argued that these should be considered part of the consideration for services rendered and thus subject to service tax. However, the appellant relied on a Supreme Court judgment to argue that reimbursable expenses should not be included in the value of taxable services. The Tribunal agreed with the appellant, holding that the reimbursed amounts could not be taxed as they were considered reimbursable expenses and not part of the taxable service value.

3. Taxability of amounts for procuring RTDs:
The Revenue contended that amounts received for procuring Repair Technical Documents (RTDs) on behalf of the Indian Navy were for Consulting Engineering Services and thus subject to service tax. In response, the appellant argued that RTDs were goods imported from abroad and not services, therefore not liable for service tax. The Tribunal agreed with the appellant, stating that RTDs were goods imported by filing a bill of entry and exempted from VAT and CST, hence not subject to service tax. The Tribunal set aside the impugned order and allowed the appeal, concluding that the amounts received for RTDs were for goods, not services, and thus not taxable under service tax laws.

In conclusion, the Tribunal ruled in favor of the appellant on all three issues, holding that the amounts received for building facilities, reimbursed income tax and VAT, and procuring RTDs were not subject to service tax.